Don’t Sell Consumer Spending Short, a Report Says

The encouraging September jobs report, which showed unemployment dipping below 6 percent, stole the limelight on Friday, but it is the quiet release of another government report that has presented economists with unexpected fodder for debate.

An article, published in the Bureau of Labor Statistics’s Monthly Labor Review, dismissed warnings that stalled incomes, changing demographics and tighter credit could make consumer spending less capable of powering the economy. By examining the relationship between consumer spending and jobs during the Great Recession and into the future, the bureau projected that spend-happy Americans would continue to account for more than 70 percent of the country’s total output and more than 63 percent of the nation’s jobs in coming years.

And where will those jobs come from? Primarily in the field of health. Labor-intensive industries like health care are expected to generate more than half the jobs that are tied to consumer spending. The sector expected to suffer the deepest job losses is manufacturing. No surprise there, but job growth in pretty much every other sector, from retail sales to government, will generally remain flat, the report said.

The bureau’s continued confidence in Americans’ ability to buy, buy, buy has struck some economists as overly optimistic. “I would like to believe that,” said Heather Boushey, executive director of the nonpartisan Washington Center for Equitable Growth. “But unless incomes start rising, I don’t see how you see an increase in consumption.” She noted that today’s median household income was $51,900, roughly equal to what it was in 1995.

When it comes to economic growth, many economists have long maintained that consumer spending is the engine. Yet just how many jobs can be directly attributed to consumption? That’s the question bureau economists tried to answer. Looking back at the worst years of the Great Recession, they noted that of the nearly 8.7 million jobs lost between 2007 and 2010, about 3.2 million, or just over 36 percent, were a result of the drop in consumer spending. Not since the end of World War II had spending dropped so sharply.

But as the report noted: “In comparison with the overall economy, consumer spending and its related employment declined less severely and recovered sooner.” The resilience of fields like health care, social assistance and educational services is the reason; they weathered the recession better than a lot of other industries. “Consumers still need vital goods and services like food and shelter during economic downturns even as some businesses entirely shut down,” the report explained.

Still, as the recovery continues, some economists have worried that the lopsided reliance on consumer spending is not healthy, and that the United States should seek to reduce that dependence. “That hasn’t happened because business investment has been pretty moderate,” Michael Gapen, Barclays’s chief United States economist, explained.

That moderate pace is a concern for economists who believe the most vigorous and sustainable growth is tied to business investment — whether in physical plants and machinery, in the work force through education and training, or in ideas and technology.

Consumer spending can crowd out more productive investment. In 2012, William R. Emmons, senior economic adviser at the Center for Household Financial Stability at the St. Louis Federal Reserve Bank, called for a restructuring of the economy focused on business investments and exports in an article titled “Don’t Expect Consumer Spending to Be the Engine of Growth It Once Was.”

Mr. Emmons, not surprisingly, said he, too, found it overly optimistic to think that consumer spending would grow at the same steady-though-slow rate as the economy.

The bureau estimates that by 2022, consumers will be spending $12.4 trillion to support nearly 95 million jobs, up from more than 85 million today. That’s a growth rate of 2.6 percent, slower than in the past, but in step with the overall economy

Not many of the jobs are going to be in manufacturing, though. It’s not that consumers don’t like American goods; in recent decades, they’ve actually increased the amount of money they’ve spent on them. The problem is that those sales have not translated into manufacturing jobs.

As the population ages, Americans will end up spending more and more of their dollars on services. According to the report, more than 90 percent of new jobs will be in the service industry, with the remaining growth concentrated in the construction industry.

James Livingston, a professor of history at Rutgers and the author of “Against Thrift: Why Consumer Culture Is Good for the Economy, the Environment, and Your Soul,” said he found the discrepancy between the trends in gross investment and consumer spending amazing. In his view, “It demolishes the notion that what we need is renewed vigorous private investment to restore incomes, growth and employment.”